What do you call a debt restructuring that doesn’t reduce, but increases the principal or interest payable, and without extending maturities on bonds that faithfully pay out?

Call it the “Argentine cram-up.”

The country’s bonds and the credit derivatives that insure against default now dwell in a parallel universe.

Yields on its performing debt and credit default swap spreads spiked earlier this week on expectations that Argentina’s government, led by President Cristina Kirchner, is marching toward another default in a high-stakes legal battle with holders of its defaulted debt. That’s as it should be.

Eurocrats insist that Greece will not default on its sovereign debt obligations, but the markets think otherwise.

As politicians and policy makers haggle, analysts are trying to game-out what would happen in the event Greece defaulted. Moody’s Investors Service in a note this morning tried to put a little meat on the default scenario, and it made for some pretty dark reading.

Let’s break it down, with a little Translation Time.

Moody’s: Moody’s Investors Service has explored possible Greek default scenarios in order to assess the impact on the country’s sovereign rating, the consequences for Greek banks and the possible paths of credit contagion to other European sovereigns, which are discussed in a Special Comment published today.

TT: Leading with “contagion” surely gets attention. If Greek defaults, it won’t be an Athens-only affair. Seatbelts, tighten ‘em.

Moody’s: Moody’s did not comment on the likelihood or the desirability of a debt restructuring, but focused more narrowly on some of the credit implications of different default scenarios.

TT: Moody’s has no dog in this fight. Just a passive observer. Right.

Moody’s: It is apparent that the longer the current state of uncertainty affecting Greece persists, the greater the temptation on the part of both the Greek and the euro area authorities to try to undertake some form of debt restructuring — in other words, to allow Greece to default. A Greek default might take many forms, including changes in terms and conditions, selective “re-profiling” and large-scale “voluntary” debt buybacks at high discounts, which Moody’s classifies as distressed exchanges.

TT: This is a killer graph. Moody’s is saying that linguistic gymnastics won’t cut it. Eurocrats can craft clever words, like “re-profiling,” but Moody’s will call it what it is: a default. And that’s bad.

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